Most telecoms companies also provide colocation data center services with acquisitions of data centers in the last decade. Now they’re mostly getting out of the game.
Telecom Italia is looking to spin-off 23 of its data centers. In the UK, Latin America, and the US, many telco providers have sold their data centers.
“Despite many telcos making moves into the data center and cloud infrastructure markets, more and more are now realizing that they would rather concentrate on their core business and let someone else manage their data centers,”
says Massimo Bandinelli, marketing manager at Telecom Italia’s compatriot Aruba.
Sales at high prices
When we look back, many telcos bought existing data center providers, often at high prices. For example, Verizon acquired data center provider Terremark in 2011 for $1.4 billion. In 2019, the company sold off its data centers to Equinix for $3.5 billion, with the reason of offering colocation services did not fit with its business model. Also, in the US, AT&T accumulated a network of data centers, only to sell them off to Brookfield Infrastructure and other institutional partners for $1.1 billion in 2017. Brookfield relaunched them as a new data center provider, Evoque.
In 2017, CenturyLink sold 57 data centers for $2.3 billion to a consortium that became another standalone data center provider, Cyxtera. For instance, in that year, Arkansas telco Windstream sold its holding of 14 data centers to TierPoint for $575m. Telecom Italia, for instance, had at least some of its facilities built by a partner from the telecoms industry – Ericsson. Also, in Europe, Telefónica SA sold off its 11 colocation data centers to Asterion Industrial Partners for €550m ($600m). In Latin America, Mexican telco Axtel sold three data centers to Equinix for about $175m.
Divesting data center assets
While selling CenturyLink’s data centers, company chief executive Glenn Post said that a lot of the motivation was simply that buyers were prepared to pay big money for those assets. The post said, back in 2015:
“First of all, as to why now is an opportune time… valuations are obviously good right now. They can always change, but we know the market’s good. We think our cashflow could be used for investments that can drive higher returns, and better shareholder value. So that’s why we’re looking at divesting data center assets.”
Required workforce and large investments
Moreover, we also saw some changes in the data center industry over the last several years, which have moved data centers ever further from the comfort zone of telecom providers. According to Massimo Bandinelli, the workforce required is very different from the one needed as a telco operator.
In addition to the workforce, large investments adjusting to industry-wide regulations, adopting standards, getting certifications, and moving to renewable energy are required for the data center market. It means for telcos huge facilities which are not cost-effective for a services company to deliver.
In the near future, data center providers that can meet market requirements and provide competent technicians at a lower cost will be dominant in the market.